RECORD OF SOCIETY OF ACTUARIES

1991 VOL. 17 NO. 2

ACTUARIAL STANDARDS

Moderator: GARY CORBE-I-FPanelists: PAUL F, KOLKMAN

DAVID LEVENEWALTER S. RUGLANDJACK M. TURNQUIST

Recorder: BRIAN R. LESSING

• History and development• Standards affecting insurance company actuaries and consultants• Value and impact of standards on different aspects of the actuary's work• Areas where additionalstandards are needed

MR. GARY CORBETT: I'm Gary Corbett, Senior Vice President and Chief Actuary ofThe Equitable and a member of the Actuarial Standards Board (ASB). Jack Turnquistis vice chairman of the ASB. He's a consultant with Totidem Verbis in Dallas,specializing in life and health insurance, particularly appraisals and financial reporting.Paul Kolkman is vice president for finance of IDS Life, and he's a member of the LifeOperating Committee of the ASB. Dave Levene is senior vice president and chiefactuary of the Metropolitan Life, and Walt Rugland is a consultant with Milliman &Robertson in Hartford. Walt has been active in the valuation actuary movement andmany other areas involving life insurance companies.

The format we're going to use is that first Jack will discuss the history of standardsetting, how it emerged in this country, how the ASB operates, and how standardsare developed. Paul will then review those standards that are of specific importanceto insurance company actuaries and to consultants working for and with insurancecompanies. Finally, Dave and Walt will comment from an insurance company pointof view and a consulting point of view on the standards that have been developed todate. Are they valuable? How could they be improved? Are there areas whereadditional standards are necessary? I've encouraged them to be critical.

The ASB is still in its early days. We recognize there are things that we couldprobably do better, and it's important for us to hear from all the members of theprofession as to how they regard the work we've done so far and their suggestionsfor changes and improvements. I would urge any of you who have comments aboutstandards -- at any time, and not just in response to exposure drafts - to let the ASBknow of your reactions to what we're doing.

MR. JACK M. TURNQUIST:DEVELOPMENT

Standards of practicehave existed in some form from the very early days of theactuarial professionin the United States. These usually appeared in the literature, butwere not explicitly written or codified.

They were touched on in some areas in the earlier Guides to ProfessionalConduct,especially the Interpretative Opinions. For instance, inthe early 1980s, Opinion A-4dealt with Actuarial Principlesand Practicesfor Pension Plans.

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The Academy was the first to respond to specific needs in certain practice areas inthe early 1970s by assigning committees to develop recommendations and, sub-sequently, Interpretations to deal with current problems. These Recommendationsand Interpretations were the R and I, which together with G and O from Guides andOpinions, formed the famous, or infamous, body of standards referred to as GORI.

The initial Recommendations and Interpretations developed covered:

o GAAP for Stock Life Insurance Companies, developed in 1973 by the Commit-tee on Life Insurance Financial Reporting Principles (COUFRP) in response tothe AICPA Audit Guide of December 1972.

o Statutory Actuarial Opinions, developed in 1975 by COLIFRPin response tothe NAIC blank requirement.

o Pension Plan Obligations, developed in 1976 by the Pension Committee, partlyin response to the passage of ERISA of 1974.

New Recommendations and Interpretations continued to be developed for specificneeds. In the process, a number of problems evolved:

o They tended to be very limited in scope;

o They were disparate in format, especially among those for financial reporting,dividends, and pensions;

o They were reactive rather than proactive;

o They tended to become outdated;

o There was no formal process to determine when revisions or deletions wereneeded;

o There was no formal process to identify areas where new standards wereneeded; and

o There were two levels of standards, Recommendations and Interpretations.While the distinction was not always clear, the Guides to Professional Conductassigned different weights and degrees of necessity to observe and complywith each.

The genesis of what has been called the "Standards Movement" in the United Statesactuarial profession began in March 1979 when the Academy established theCommittee to Study the Requirements of Professionalism. The charge to thiscommittee was to determine if there was a need to define a set of uniform standards

of practice that would govern actuaries working in diverse fields.

In its report in June 1983, the commi_ee endorsed this concept of uniform standardsand that of a single coordinated board with the overall responsibility to manage theprocess. This set the framework for what followed.

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Over a period of years, as the result of the work of the Standards ImplementationCommittee (SIC), and later the Standards Organizing Committee (SOC), the InterimActuarial Standards Board (IASB) was established in the fall of 1985. It was intendedthat the IASB would operate for a peried of between 18 months and three years tosee if the concepts and operations contemplated would work in actual practice.

The IASB held two organizational meetings late in 1985 and commenced formaloperations in January 1986. In rapid order, the IASB:

o Developed a set of operating procedures;

o Established operating committees and task forces, many of which were staffedfrom existing Academy committees;

o Identified areas where standards were needed;

o Oversaw the development, exposure, and subsequent adoption and distributionof new standards;

o Developed the basic uniform format for actuarial standards of practice to beused for all disciplines and subjects;

o Developed budgets; and

o Recruited staff.

The IASB also identified two basic problems. The first was that standards of practiceneed to be built on principles of actuarial science. In turn, principles of actuarialscience develop from the basic foundations or fundamental concepts of actuarialscience which are applicable to the profession as a whole. Unfortunately, neither theprinciples nor the basic foundations of actuarial science had been codified at this time.The need for both was obvious.

The IASB also felt that it would be difficult to present standards of practice in avacuum, especially if they were to be meaningful to the younger members of theprofession. There existed a need for an exposition of the nature of the actuarialprofession, its foundations, and the role that standards of practice play - some typeof structural framework to accompany the presentation of standards.

As a result, the IASB commissioned two documents. The first was the Trowbridgemonograph on Fundamental Concepts of Actuarial Science. This was funded throughthe AERF and published in 1989. Jim Hickman, a member of the IASB, provided thebasic outline of topics, which included such basic actuarial fundamentals as randomvariables, the time value of money, and individual and collective models.

The second document was the "Preface to Actuarial Standards of Practice" developedby Ed Lew. This was funded through the Academy and published in 1989. It isnow in the front of the ASB Standards Manual. I am sure you have all read thisdocument. It provides an excellent background and framework for the standards andtheir role in the actuarial profession.

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The creation of the IASB was also instrumental in initiating the codification of actuarialprinciples by both the Casualty Actuarial Society (CAS) and the Society of Actuaries(SOA). The distinction between and responsibility for actuarial principles and actuarialpractices had been established. The learned bodies, the CAS and the SOA, wereresponsible for codifying actuarial principles. The Academy, through the ASB, wasresponsible for codifying actuarial standards of practice. The actuarial organizationsbecame more careful in distinguishing between these terms, which had often beenused somewhat interchangeably.

The operations of the IASB were reviewed in detail and evaluated by the SOC, aswas its charge from the Academy. At the end of 1987, after 22 months of opera-tions and after extensive discussions with the IASB, the SOC made its recommenda-tions to the Academy that a permanent ASB be established, with a proposedtimetable leading to its creation in mid-1988. The SOC also outlined how it should bedone, including the structure, funding, authority, autonomy, controls, method ofelection of board members, their terms, etc. The ASB would be established as a"Section" within the Academy, requiring a bylaws amendment and a vote of themembership.

The bylaws amendment was voted by the membership of the Academy in the springof 1988 and the ASB was created, effective July 1, 1988. The ASB got off to arunning start as a result of the structure and framework development provided by theIASB and the SOC. The procedure provided a smooth transition with no break incontinuity.

CURRENTOPERATIONS

While the ASB was established"within" the Academy and looksto it for funding,there are severalunique featuresdesignedto assure that:

o The ASB retains a degreeof independencefrom the Academy and the otheractuarialbodies;

o The ASB receives input by, and representation of, the various actuarial bodies;and

o The profession was not creating a monster that might get out of hand.

The features relative to independence are:

o The ASB essentially determines its own budget.

o The ASB has sole authority and discretion in promulgating actuarial standardsof practice.

o The ASB does not report to or answer to the Board of the Academy or anyother actuarial body. The Academy membership created the ASB by a bylawsamendment, and the only way to get rid of it is by another bylawsamendment. Consequently, the ASB is, in reality, responsible directly to themembership.

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The features relative to representation and control are:

o The presidents and presidents-elect of the principal U.S, actuarial bodiesconstitute the selection committee which elects the members of the ASB.

o Limitations are placed on the terms and the succession of terms of boardmembership.

o The funding procedure is overseen without funding, the ASB could notcontinue to operate.

The purpose of the ASB, as set forth in its creation, is fairly simple and essentiallythreefold:

1. To direct and manage development of standards of practice in all areas ofactuarial practice.

2. To expose and promulgate such standards.

3. To provide continuous review of existing standards for needed updating orelimination.

The ASB is composed of nine members, appointed for three-year terms with amaximum of two successive terms, The terms are staggered so that essentiallyone-third of the Board positions are up for appointment each year. This provides thedesired balance between turnover and continuity.

The ASB appointees tend to be senior actuaries with broad-based experience, bothprofessionally and as operating and practicing actuaries. They are generally represen-tative of the areas of practice and types of employment within the profession. Forexample, the current ASB composition by area of practice is three life insurance, twocasualty insurance, two pension, one health insurance, and one academic. Byemployment background, the composition is three company, five consulting, and oneacademic. Six members have served as president of one of the principal U.S.actuarial organizations.

As an interesting aside, there is no requirement that an appointee be a member of theAcademy or, for that matter, even an actuary. I do not believe there is any immedi-ate intention to add a nonactuary to the ASB, but that latitude exists for futureappointments.

The selection committee picks the chairperson of the ASB to serve a one-year term,with a maximum of two successive terms. The chairperson, in turn, nominates twovice-chairpersons, one to function as a deputy chairperson and the other as the chieffinancial officer of the ASB.

The actual standards of practice are developed by or through the operating commit-tees and task forces of the ASB. There are currently six operating committeescovering five practice areas and a crossdiscipline catchall. These are casualty, health,life, pension, retiree health care, and specialty.

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Currently there are also two operating task forces that have been created to developspecific standards of practice. One is the Task Force on Insurance Company Apprais-als and the other is the Task Force on Long-Term Care.

In addition, there is an Editorial Advisory Committee. This committee was created toassist the operating committees and the Standards Editor on format and style issues.It also undertakes special projects for the ASB, such as assisting with the develop-ment of the Standards Manual and the compilation of the Glossary.

The chairpersons of each operating committee are nominated by the ASB chairpersoneach year and are subject to approval by the ASB. Members of the operatingcommittees are appointed by the committee chairpersons, subject to ASB approval.As with the ASB itself, the members of the operating committees and task forcesneed not be members of the Academy, or even actuaries. In the case of the TaskForce on Actuarial Appraisals, two of the members are investment bankers.

The organization and composition of the operating committees vary significantly.They range from large and highly structured committees with a number of sub-committees, such as those for casualty and health, to relatively small committees,operating primarily through other committees or appointed task forces, such as thosefor life and specialty.

The priorities of each operating committee and task force are established by thecommittee chairperson meeting with the ASB for those standards to be developed orrevised within that practice area. This usually is done at the January ASB meeting forthe ensuing year. The prioritiesare updated and modified during the year as needschange and circumstances evolve.

I would like to cover briefly the process of development of standards. The operatingcommittee or task force, usually the chairperson, and, if appropriate, the representa-tive of the committee or group actually responsible for the drafting, present the draftstandard to the ASB with a request for exposure. This requires approval by amajority of the operating committee. The draft is circulated to the ASB well inadvance of the meeting to allow sufficient time for review. A legal opinion must beprovided that the draft standard is in compliance with applicable laws and regulations.

The ASB may either send the standard back to the committee for change withappropriate comments or directions, or approve it for exposure, usually with minormodifications subject to committee approval.

I believe you are all familiar with the exposure and comment procedure. The revisedstandard, reflecting the comments received during exposure, is then submitted to theASB, together with a transmittal memorandum, legal opinion, and other supportingmaterial, with a request for adoption or reexposure. This procedure is similar to thatfor initial exposure. A request for adoption requires a two-thirds vote of the OperatingCommittee.

The ASB may approve the standard for adoption, usually with minor modificationssubject to committee approval, or return it to the operating committee for revisionwith appropriate directions and comments.

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By this time, you are all familiar with the format adopted by the ASB for ActuarialStandards of Practice. There are a couple of points which do bear additionalcomment.

The IASB inherited the 13 old Recommendations and Interpretations from theAcademy. As noted previously, these were in various formats, styles, and degrees ofcurrent applicability. Nonetheless, they remained as Actuarial Standards of Practice.The operating committees, the Standards Editor, and the Edi:torial Advisory Committeehave been involved in reviewing, revising, updating, reformatting, dropping, replacing,combining, and, where appropriate, reexposing these old standards. This has been along and involved process, and it is hoped that it will be completed by the end of1991.

The ASB recognized that some actuarial work is done in response to controllingregulatory bodies or other professional organizations that have established rules orrequirements that are not in accordance with generally accepted actuarial principlesand practices or that prevent an actuary from applying professional judgment. Anexample would be FASB, which has a somewhat negative attitude as to the exerciseof professional judgment in developing values for financial reporting purposes, tendingto favor rules or cookbook approaches for consistency and to minimize possibleabuses. This caused many problems and much grief with the proposed standardexposed by the IASB on SFAS 87. This ultimately led to the development of aparallel formatted document called an Actuarial Compliance Guideline, which wasadopted for SFAS 88.

The format for Actuarial Standards of Practice is not regarded as fixed. Rather, it issubject to modification in special circumstances and as needs arise.

The ASB has scheduled quarterly two-day meetings in January, April, July, andOctober. Starting in 1991, the meetings alternate between Washington, D.C. andDallas. The ASB may schedule additional meetings as needs arise. The meetings ofthe ASB and the operating committees are open to both the membership and thepublic at large. However, participation in such meetings usually, requires a priorrequest and approval.

In closing, I would like to emphasize that, in developing standards, the ASB has fourprincipal objectives:

1. To be proactive rather than reactive.

2. To monitor continually the needs of practicing actuaries and the publics thatthey serve.

3. Standards should not preclude the exercise of professional judgment by theactuary.

4. To have standards apply as broadly as possible across the various actuarialdisciplines.

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MR. PAUL F. KOLKMAN: Before I start through an overview of the standards thathave been adopted so far, I want to give a bit of background as to where and howstandards fit into the hierarchy of Academy guidance on professional matters. TheAcademy recognizes standards in three distinct areas which are outlined in theYearbook. The areas are professional ethics, qualifications, and quality of work.

The area of professional ethics is covered by the Academy's Guides to ProfessionalConduct and Interpretative Opinions as to the Guides, which are also in the Yearbook.These cover such generic matters as respecting confidentiality, avoiding conflicts ofinterest or at least making all parties aware of conflicts if they arise, and not doinganything that is contrary to public policy or the law. These are general, high level,professional standards that pretty much any profession could have, and violation ofthese then triggers the Academy's disciplinary procedures.

The area of qualification standards is somewhat newer and deals with the formalqualifications to do work in certain areas. It mainly applies to statutory statements ofopinions.

The area of quality of work is covered by the actuarial standards of practice whichcome out of the ASB. These are the uniquely actuarial standards, dealing with the"how to" and the quality of actuarial practice.

The relevance of actuarial standards stems from the Guides and InterpretativeOpinions as to Professional Conduct, and primarily, Interpretative Opinion 4, whichquotes Guide 4 as saying that the actuary is required to exercise due diligence toensure that the methods employed are consistent with sound actuarial principles andpractices. Interpretative Opinion 4 states that sound actuarial principles and practicesconstitute Generally Accepted Actuarial Principles and Practices, and then goes on tostate that Generally Accepted Actuarial Principles and Practices include ActuarialStandards and Compliance Guidelines. So, actuarial standards are cited in Interpreta-tive Opinion 4, and again, violation of these would then trip the Academy's disciplin-ary procedures. Opinion 4 goes on to state that an actuary who chooses practicesthat differ from any standard should be fully prepared to explain what he or she did inthat particular case.

While on the subject of Interpretative Opinions, I'd like to cover one more, and that'sOpinion 3. Opinion 3 doesn't refer to standards of practice, but many of the stan-dards of practice refer to it. It deals with professional communications by actuaries,not only written communications, but also oral communications.

Interpretative Opinion 3 recognizes four separate types of communications: state-ments of actuarial opinion, actuarial reports, statements of actuarial review, andrequired actuarial documents. A statement of actuarial opinion is the formal state-ment of opinion we make in statutory annual statements. There are obviously otherexamples, but that's the most common. An actuarial report is any formal writtenreport or oral presentation that serves to convey an actuary's conclusions or recom-mendations. A statement of actuarial review is a formal statement issued by oneactuary who reviews the work of another actuary. A required actuarial document is adocument which is prepared by an actuary, but the form and content is prescribed byeither law or regulation.

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I'd like to make a couple of other points about Interpretative Opinion 3. It talks aboutreliance on others -- both actuaries and nonactuaries would be significant here -- andsome of the standards address this issue. It also distinguishes between direct andindirect users of actuarial communications. A direct user would be an employer orsomeone who has retained the actuary. Direct users get to pick the actuary.They've got direct communication with the actuary, usually during the course of thework but certainly when reviewing the final work product. An indirect user issomeone who comes across actuarial work later. Indirect users may not have directaccess to the actuary; therefore the actuary, in preparing his work, has to be sensitiveto the potential for misquotes and misinterpretations.

Moving now to the standards themselves, the typical standard has six parts: (1)purpose and scope; (2) definitions of the terms used in the standard; (3) a discussionof background and historical issues; (4) a discussion of current practices and possiblealternatives; (5) an analysis of the issues and specific recommendations; and (6)communications and disclosures.

Section 5 is always the heart of a standard; it often has many recommendedpractices, depending on the particular standard. I won't cover much Section 5material because it would just take too long. I will talk mainly about Section 1, thepurpose of the various standards and their scope, and Section 6, the communicationand disclosure requirements. But I will make a few comments on the Section 5things to the extent they can be summarized and they're interesting or significant.

There are 17 standards, numbered in the order of adoption. Of the 17, nine havesignificant application to actuaries working either as employees of or as consultants tolife insurance companies. The first standard I'll cover is No. 7, dealing with how todo cash-flow testing.

Actuarial Standard No. 7 deals with how to do cash-flow testing for life insurancecompanies. It doesn't tell you when to do cash-flow testing, but does recommendpreparing a report if you perform cash-flow testing as part of your work. It doesn'trequire a report, but it lists the specific items that should be covered if you do areport. It explicitly allows for reliance on others and, in particular, on investmentprofessionals, recognizing the fact that not all actuaries are expert in such matters.

Actuarial Standard No. 14 is also a cash-flow testing standard. It's a "when to"standard. We have a standard on "how to" and a standard on "when to." No. 14

gives guidance to the actuary in deciding whether or not to do cash-flow testing. Itlists areas in which cash-flow testing should be considered, such as pricing andproduct development, evaluation of alternative investment strategies, and testing ofpossible repricing mechanisms for nonguaranteed elements, and even the testing ofvarious dividend scales. It also talks about valuation, statements of valuation opinion,and appraisals as being other areas in which cash-flow testing may be appropriate.

As far as an actuarial report is concerned, No. 14 says that if you do a report in anyarea in which cash-flow testing might be expected -- for example, investmentstrategies, valuations, or appraisals -- then in your report you need to say whether ornot you did cash-flow testing, and if not, why not.

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We now move from the cash-flow standards to Standard No. 10, dealing withGAAP accounting by stock life insurance companies. Standard No. 10 was adoptedshortly after the adoption of SFAS 97 by the FASB. Standard No. 10 is intended toincorporate the actuarial considerations needed to determine liabilities and deferredacquisition costs (DACs) in conformity with SFAS 97, both for SFAS 97 productsand those former SFAS 60 products now accounted for under SFAS 97. It doesn'trequire a report, but it does say the actuary needs to be able to demonstrate confor-mity with the standard, and needs to maintain adequate documentation.

No. 11, dealing with the treatment of reinsurance transactions in life insurancecompany statements, applies to both ceded and assumed reinsurance transactions, instatutory, GAAP, or any other financial statements. This standard states that theactuary needs to observe the law or regulations applicable to the financial statement.If a state or the accounting profession permits certain transactions, it's okay torecognize them, but ultimately the net of all transactions must make suitable provisionfor all your future obligations. The actuary needs to be prepared to demonstrateconformity with that requirement. The standard also suggests that the actuary maywant to perform cash flow testing to confirm sufficiency.

Standard No. 1, dealing with nonguaranteed elements, applies to any nonparticipatingcontract in which charges or benefits to the customer can vary at the discretion ofthe company, and covers the actuary's work in the determination of such charges orbenefits. A report is required, and the standard lists the items that must be included.It doesn't detail how to set charges or benefits, but does require that whatever isdone be documented in a report.

No. 15 is a companion standard to No. 1. It deals with dividends and dividendillustrations on participating business issued by both mutual companies and stockcompanies. It again describes the basic responsibilities of the actuary in the determi-nation of dividends. The main distinction between this and No. 1 is, of course, that

equity is required among policyholders, whereas that's not required in the nonguaran-teed element standard. Again, a report is required, and the standard outlines theitems that need to be included in any such report.

Standard No. 5 deals with setting health claim liabilities for any purpose whatsoever,be it a financial statement or something else. It applies to both life insurers andnoninsured plans, and it outlines the things that the actuary needs to consider doing insetting such claim liabilities.

Standard No. 8 is another health insurance standard, dealing with filings with thevarious regulatory bodies, primarily state insurance departments. It covers actuariesthat prepare and file such statements, and the actuaries for the regulators that reviewthem. The standard states that these are required actuarial documents per Interpreta-tive Opinion 3, and requires that you include in them a statement that the documentwas prepared as part of a regulatory filing and may not be applicable for any otheruse,

The last standard I wanted to talk about deals with risk classification. I guesspersonally _don't believe that equity is an actuarial principle, but many states andregulations require that certain things be equitable; and if an actuary is going to give

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an opinion that something is equitable, there probably should be some professionalguidance on how to do that. Standard No. 12 gives guidance on how tQ determinewhether or not a particular risk classification structure is equitable. Again, it refers toInterpretative Opinion 3, indicating what you need to include in your report, and itpays particular attention to indirect users. In the area of what is or is not an equitablerisk classification system, the likelihood of indirect users coming across actuarial workis quite high, and you need to be sensitive to the potential for misquotes andmisinterpretations.

That's the last of the adopted standards that I want to talk about, but as Jackmentioned, there are the old Financial Reporting Recommendations and Interpreta-tions, and I'd like to just give you a status report on those. These are also standardsof practice in the sense that they've been adopted by the Academy and bear aboutthe same significance in the hierarchy of professional guidance, but there's a projectunderway to put them into the format of the new standards. The project has beenunderway for a year or so, and will obviously be subject to the decisions of the ASB;but having seen some of the deliberations, I might be able to give you an idea ofwhere the project is going.

The old Recommendation 1 deals with GAAP for stock life insurance companies.Standard No. 10 overrode much of what is in Recommendation 1; there is very littlein Recommendation 1 that is really significant anymore. The material that is signifi-cant is the SFAS 60 material that wasn't changed or overridden by SFAS 97. Theintent is not to come up with a new standard for that, but to go back and enhanceStandard No. 10, to include the material from the old Recommendation 1 that is stillsignificant.

A couple of other Recommendations and Interpretations will have the same fate.There is a school of thought that believes that Recommendation 5, on recognition ofpremiums, would probably be best as a study note. It's really kind of educational and"cookbooky," but there are a few things in there that may be significant, and couldwind up in a revised Standard No. 10. Recommendation 6, on participating policiessold by stock companies, was a standard to describe how stock companies should doGAAP accounting for their participating business. Again, the feeling is that thismaterial most suitably belongs in a universal GAAP standard, which is Standard No.10.

Recommendation 2, on relations with the auditor, was originally written to deal withrelations between the actuary working for a stock life insurance company and theexternal CPA auditor. There's been some discussion about expanding this to anactuarial standard dealing with relations between an actuary, in general, and "regula-tors" defined broadly; that is, state regulators, external CPAs, the SEC, whoever.There should be a certain professional responsibility in dealing with an auditor review-ing one's work.

It looks like Recommendation 3, on actuarial reports and statements of actuarialopinion, will probably die. This Recommendation has been in place for almost 20years, and almost no one follows it. It probably doesn't make a lot of sense to havea standard if it's widely ignored. No one follows that standard because it was reallythere to require the actuary to prepare a report and opinion on GAAP reserves in the

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hope that the accounting profession would respect the report and opinion, as is donein Canada and the U.K.; and that just never occurred.

With respect to Recommendation 9, on materiality, it will simply be redrafted to covermateriality in probably all of its aspects and not just GAAP accounting.

Recommendation 11, on statements of actuarial opinion for interest-indexed universal

life insurance, has been a special-purpose Recommendation. It will probably bedeleted in the hope that the new statutory statement standard will cover most ofwhat was in here.

And last, with regard to Recommendation 7, on statements of actuarial opinion forinsurance company statutory annual statements, the current intent is to reformatRecommendation 7 consistent with the current valuation law. The new standard law

involving the valuation actuary concept was adopted in December 1990. States willprobably start to adopt it this year. In states that adopt it this year, it will be effectivefor 1992. The feeling is that we should develop a standard to apply to the existing

law, useful for 1991 statements, and then in the interim, prepare one to apply to thenew law for those states in which the new law becomes effective in 1992 or later.

MR. CORBEl-r: I think many life actuaries tend to think these standards apply mostlyto consultants and in the pension area, but there is a growing body of standards thatdo apply to actuaries working for and with life insurance companies.

MR. DAVID LEVENE: When Gary asked me to participate in this panel discussion, I

chose to forego my customary train reading of The Wall Street Journal and reread thestandards instead. Having reread them, I have only compliments for the ASB and itssix operating committees.

I think the standards are well-wri_en, comprehensive, and clearly done by experts intheir fields. The exposure and review process appears to be fair and well thought

out. The standards provide an extensive checklist of items that we should consider inperforming the various actuarial functions. The standards should help us maintain a

conscientious approach to our professional responsibilities.

In these difficult financial times for the insurance industry, the spotlight will beincreasingly focused on the actuarial profession to provide assurances or warninglights -- to insurance companies, the insurance departments, and the public. It's only

a matter of time until the actuary will be looked to by the regulators and the public tosign more statements of opinion in additional areas, and therefore, our profession

needs the good work of the ASB to continue.

But Gary told me, "Don't come here and just give praise." "Be critical." "Be contro-versial." So here goes. First, the standards are boring and definitely not first-rate

entertainment. So the problem is how to get the membership to read the standards.Certainly the standards are given lots of shelf space in the Actuarial Update newsletterand the ASB BOXSCORE. They are even in a nice, convenient, three-ring, gray

binder. In preparation for this session, I decided to find out how many people at mycompany, Metropolitan Life, are reading these standards. So I sent a survey around.

The comments I got back ranged from "What gray binder?" to comments that the

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standards were "Very helpful, very good, very informative." The Academy mightwant to take a similar survey of the membership to find out how effectively thestandards are being used.

I also think that the ASB could gain greater visibility for the standards if it were toaddress its attention to those people who can help influence the use of the standardsin their insurance organizations and consulting firms. The Academy could use manymore sets of hands in publicizing the standards, such as company chief actuaries orthe lead partners in consulting firms. I think that these people have to help the ASBspread the word.

Moving on, the actuarial standards are in general rather broad, and 1do not recom-mend that they be made more specific. One of my survey questions to the Metropol-itan Life actuaries, was, "Are the standards too general?" More than 90% of therespondents thought the standards were fine as is and should not be made morespecific. I am part of that majority, and I would not want to see the standards bemore specific. I think the range of opinion in our profession is appropriately diverse,and we should not try to pigeonhole actuaries into a narrow band of practice. I don'tthink the profession wants to stop its actuaries from having differences of opinion.Group actuarial consultants can continue to argue with insurance company actuariesover premium rates, and actuaries representing unions and actuaries representingmanagement are entitled to disagree. If we all agreed, a lot of the fun, as well as thelegitimate professional differences of opinion would be lost, and what's more scary isthat actuarial judgment and experience would be devalued.

So, rather than narrowing the standards, I believe that the ASB standards should be ajumping off place for insurance companies or consulting firms to make the standardsmore specific for their firm's actuaries.

At Metropolitan Life we have begun the process of "Metropolitanizing" the ASBstandards. We are developing Metropolitan Actuarial Practice Standards, which werefer to as MAPS.

One of the first areas in which we are producing MAPS is one where no ASBstandards currently exist, and that is in the business planning process. I believe thatactuaries need to be proactive and involved in the company's planning process. Inmy company, actuaries in each line of business help develop the financial plan andprojections. We feel it is important that actuaries be involved in the planning process,and not be acting simply as scorekeepers.

Anyone familiar with planning and forecasting is aware of the hockey stick phenome-non where results are always projected to improve dramatically in the "out years."Under our MAPS system, we ask Metropolitan Life actuaries to make their projectionsrealistic, and to furnish an actuarial memorandum documenting and supporting thekey financial assumptions used in their business plan. If other actuaries agree that theneed exists, the ASB might wish to consider developing a standard for the actuarywho is involved in the planning process.

Now, I'd like to get a bit controversial, and suggest to the ASB that it considerdeveloping standards for actuarial work on the asset side of the balance sheet. The

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asset side, with its well-publicized problems of junk bonds, real estate and commercialmortgages, needs the attention and skills of the actuary. Asset valuation, assetexperience studies, and projections of future asset values are all areas where theactuarial perspective and discipline could be put to good use. I might add that wemight not be welcomed by other groups if we did develop standards in those areas,but I do think it's something we should nevertheless seriously consider. Our profes-sion has gotten our "nose" well under the asset "tent" by way of New York Regula-tion 126 cash-flow testing, and the standards of practice that Paul referred to, No. 7and No. 14, but if the actuary is to be an effective and knowledgeable spokesman onthe financial condition of his company and his industry, he needs to play an evenbigger role in understanding the asset values of his company.

I see that the program for this meeting lists several topics on the asset side; there'sone topic on commercial mortgages, and another one on real estate. I think this isevidence of the profession's increasing interest in this area. The development ofstandards of practice for those actuaries involved or soon to be involved on the assetside would in my opinion be very worthwhile, both in helping the actuary to performhis responsibilities, as well as in publicizing the actuarial profession's interest in thiscritical area.

in summing up, we have an excellent set of standards, but they need to be bettercommunicated and publicized, and using the senior actuary in the firm to carry theball would help. I don't believe the standards should be more specific. If specificityneeds to be developed, I suggest that it be the responsibility of each insurer orconsulting firm to tailor its own specifics. I recommend that an ASB standard bedeveloped for the actuary involved in the planning process, and that a standard bedeveloped to help the actuary assess the past, current and projected performance andvalues of a company's assets.

MR. CORBETT: Thank you Dave, for a well-balanced set of comments. It's exactlythe type of input we in the ASB are looking for. Whether or not standards would beappropriate in the planning and asset areas is something we would have to debate,but we should look at it.

MR. WALTER S. RUGLAND: I will make my comments in four different segments.The first segment will consist of my thoughts on the standards and the need to viewstandards of practice in the full context of professionalism.

The Society, of course, deals in U.S. and Canadian issues, and when we are talkingabout the ASB we are talking primarily from the U.S. point of view. When we arethinking of ourselves as professionals, we think of the need to do research; apply thatresearch in practice; practice in such a way that the people who use our work canrely on our results -- both in terms of the methodology we use as well as theapproach that we take to the necessary assumptions; be continually upgrading andchanging our approach, as a result of research and changes in practice; be qualified todo the work that we are doing; and have the profession itself be able to discipline usif we run astray from the norm or the expectation of our clients in terms of theirreliance on us.

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I think these are critical issues. Research, practice, reliance, qualification, discipline,and standards of practice are the basis upon which our clients can rely on us.

We've made real progress in the 1980s. The Society of Actuaries and the CasualtyActuarial Society have undertaken substantial efforts in research; and we are, in fact,beginning to realize the results of those efforts with meaningful work in both thetheoretical and practice realms. Our practice areas are developing faster than ever,and we are developing with an unprecedented confidence that we're able to deliver. Ithink this is true both inside companies and in consulting.

There is a demand from the public, from the people that use our skills, that they beable to rely on us. And they want us to give evidence that they can rely on us. Thisis a demand for professionalism, which gets back to what professionalism is fromresearch to discipline.

We've advanced in understandable and manageable form the notion of qualificationstandards in the United States, and we've put in place a system, a process, ofdeveloping them that individuals practicing can rely on. We are also close to having adiscipline process which might work, which is the concept of the Actuarial Board forCounseling and Discipline. So, real progress has been made. Standards of practiceare the critical link in the chain with respect to having our profession meet theexpectations of the public regarding professionalism.

The second point I'd like to talk about is what I call the cookbook issue. I was a partof many of the discussions with respect to the ASB. About every third meeting we'dspend half a day on the cookbook issue, and in presentations in the middle 1980s,which are well-recorded in the literature of our profession, there was talk about thecookbook issue.

Back then, the activists for standards were urging us to develop rules that wouldpolice those actuaries who practiced in a deficient manner. The people who wereobserving us and looking at us as a fledgling profession, wanted to rely on us. Butthey wanted to rely on us in terms that they would define for us and definitions thatthey would give us. The way they would do it was by telling us to develop stan-dards that were detailed and that they would have a chance to provide input for. So,the activists wanted us to have lengthy standards that took care of the deficientpractitioners and observers. They wanted standards which reflected the activists'ideas, methods, and specifications.

The passivists during that time basically said, "Leave me alone, thank you, I'm doingall right, I'll do it my way, and I don't need your advice. Actuarial science is an art,not a science, and rules will stifle my ability to practice, develop my practice, andsatisfy my clients." Those passivists were given assurances over and over again thatwe were in fact not defining practice, but codifying practice.

We were trying to address the twofold question: (1) How can the public rely on thework you do? (2) How can you feel confidence that the work you do is in factappropriate? We still address this. The ASB approach is not to define a practice, notto create a limit, but to define what is inside a black box for an actuary acting in anarea that is a black box. If you choose to operate in a way that differs from the ASB

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way, you must disclose what is in your black box and how your methodology affectsthe results relative to those approaches described by the standard.

I believe that the cookbook issue has been a tough issue for the ASB. Standardshave emerged so far as being almost law, and there has been a question as towhether you can, in fact, deviate from standards. It's been pointed out that there isroom to deviate as long as you disclose the deviation, and I think that component ofthe structure needs to be preserved. There will be long discussions over the next fewyears about how strictly the standards must be complied with, as opposed to lettingpractitioners do something different, depending on the situation.

Obviously, it's much more comfortable for us as consultants to comply with thestandards. However, there seems to be a new cry for cookbook standards, and Ithink it comes as much from the passivists as it does from the old activists, maybemore so. Now that we've got a standard which is only a sixteenth of an inch thick,or five pages, instead of a half an inch thick, all the passivists are coming out of thewoodwork and saying, "You've got only one paragraph here; you didn't tell me whatit means. So, why don't you tell me more about what it says?"

What we need to do as practicing actuaries is to say, "1think I understand what theprinciple is in that paragraph, and now I'm going to apply it to the best of my ability."When I am talking to people, even in companies, who say, "We don't really knowhow to do this," my advice is: "Do the best you can. Go back to the literature. Goback to the discussion. Go back to the notes, the exposure notes, and the discussionabout the exposure draft, and do the best you can. And the next time one of theexposure drafts comes through, read it and comment on it."

And I think that this is what is beginning to happen. I think that individuals and firmsare beginning to realize that the time to really make the most of the standards ofpractice is when they are in development. That's when we should read them anddiscuss them, and we should know how we are going to implement them beforethey get promulgated. If we have trouble with what they mean, we should commu-nicate it to the ASB and to the appropriate committee. I'm convinced that thecommittees do, in fact, react to those types of comments and do try to do the bestthey can in terms of responding to responsible suggestions and concerns.

The extent to which the ASB creates cookbooks will, in the long run, stifle our abilityto act for our clients and for our interested publics. We need to be careful and objectto detailed standards, and we need to convince ourselves that we can deal withstandards that rely on us to act as professionals.

The third area I'd like to talk about is the value of standards in my work as a consul-tant. Perhaps it is best to start with the client's point of view. I think the standardsprovide a lot of help in dealing with my clients. First of all, they give me trappings ofa profession, which I didn't have before, and believe it or not, I think that's important.It's an advantage for me to be able to say, "My professional requirements say thatthis is what I must do"; it was difficult to say that before. Once in a while we'd say,"Our firm requirements say that this is what I must do," and that sometimes carriedthe day. But if you can basically say that, "You asked me to act for you as a

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professional; my profession has defined that this particular assignment needs to bedone this way," you don't have to defend the approach you're taking.

People want to rely on us for our work, and now we can better deliver on theirexpectations. They want a basis on which to rely on us, and now we can give themthat basis, by saying that we have complied with the standards of practice of ourprofession.

We are getting into situations that require professional opinions and comments. TheAcademy legal counsel was asked to make a list of all the types of opinions that arerequired in statutory law and regulations for life insurance companies, and he came upwith well over 50 opinions. We're not going to be able to deal with all of them withstandards. But we have to try to create an environment where professional practiceis applied to each one of those situations. To the extent that we can identify acommon thread in those requirements for actuarial opinions, we can use standards tohelp bolster our work.

I think that as we become more adept at developing and implementing standards ofpractice, we're going to find that all kinds of people will line up and ask us to dowork. That may lead to a situation where people try to pass onto us all the problemsthey can't solve. In one way that's nice. On the other hand, we need to be carefulthat we don't define our profession ahead of our ability to get at some of theseissues. Overall, though, I think we tend to be too bashful about what we can do. Ithink we should step up and try to use our skills wherever people ask us to use them.

From a consultant's point of view, how do standards affect our work? First of all, Ibelieve they affect the way we organize our work and the process we use as weimplement our assignments. They have helped me and my staff focus on ourresponsibilities and our accountabilities. They have also created ways in which wecan communicate better with our clients, because they add another dimension - howwe are complying with the standards of practice. They also assist us in focusing ourdiscussions; we have found in a few instances that discussing exposed standards hasbeen beneficial, both internally and with clients. So, we're going to spend more timewithin our firm talking about standards in the exposure process, and without stiflingindividual comments, attempt to comment on them as a group. I'd be interested aswe go forward, Gary, in seeing if you're finding more and more comments onexposures from groups of actuaries, either within companies or within consultingfirms.

The standards as they are promulgated provide us with an established "standard ofcare." I guess that goes back to the medical profession where you can say what theestablished standard of care is for a particular assignment. The standards tell us whatwe should do with respect to an assignment. The whole notion, though, is also amind-set-changing process. As we establish a standard of care in defined areas, wewill find, I believe -- and I think we're already doing this -- that our mind-sets changeas we move into nondefined areas, or defined areas not touched by the standards.We will find that our ability to think about how we are dealing with the projects infront of us has been expanded.

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In our firm's consulting practice of life and health insurance, we want to have all ofour actuaries comply with the standards of the ASB, and we supplement thosestandards with additional internal standards of practice that we think are appropriate.Our internal standards tend to be more "cookbook," which is appropriate becausethey deal with our internal issues.

In the fourth segment of my comments I'd just like to address some random ideas.

It's important for all of us to remember that there is no one on top that's telling theASB what to do. I hear a lot of people saying, "The Academy Board ought to getafter the standards people and get this done." But in fact, there is nobody up on topthat can talk to the ASB about getting things done. You and I are the ones that havethe most impact on the ASB, and we need to let it know what we think needs to bedone. So, it's not only communicating to the ASB with respect to exposures that'simportant; but it's also communicating to the ASB with respect to issues you think itshould address.

With respect to what standards are needed for actuaries practicing in the life insur-ance area -- I think that we need standard work done now to complement therevision of the standard valuation law. I disagree with the position that Paul noted,that of building a standard that just gets us to where we were. I don't think we needthat. The issue with regard to the change in the valuation law is, what does anactuary mean when he or she says that reserves are adequate? It's going to take usmore than a year to get that done, and I think we need to start now.

I believe we also need a standard that deals with the actuary's role in measuringperformance of a life insurance company and its management. How well is a lifeinsurance company doing? My belief is that statutory accounting doesn't do that.GAAP accounting doesn't do that. Lots of companies are measuring themselves interms of their performance in different ways, and I'm not sure that the actuaries arebeing guided well in supporting those efforts. The appraisal standard might besomewhat helpful here, but I think its focus has been on appraisals per se, asopposed to measuring performance.

I suggest that we need to think about a standard for actuaries who are working withinsurance company rating agencies. I think that's an area in which the actuaries whowork in those agencies need support, and I think it would be appropriate for the ASBto address that question.

To the extent that actuaries are dealing with and taking responsibility for life insurancecompanies' sales illustrations, the ASB needs to provide guidance. It's questionablewhether actuaries will have responsibilities in that area, but ff and when they do,guidance is appropriate.

I have another miscellaneous comment. I've been a member of the Practice Council

of the American Academy of Actuaries, which is basically a council made up of thechairpersons of various committees that deal with life insurance company issues.One of the discussion points has been whether there should be an Academy effort toascertain compliance with standards, with respect to specific actuarial functions suchas the actuary's statutory opinion.

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The Canadian Institute of Actuaries has undertaken this: A part of the process indoing statutory opinions is to complete a compliance questionnaire, which then getssent to the professional organization, as opposed to the regulator. So, we may havesome open dialogue coming up about the extent to which we should self-police ourcompliance with actuarial standards. I believe this would be healthy, and that weshould proceed with it as fast as we can.

Let me quote something I wrote back in 1984 for a committee report, as a finalcomment with regard to actuarial practice'.

It's not appropriate for the profession to define exactly what an actuarymust do, or restrict the freedom to responsibly choose techniques,applications, procedures or approaches to establishing assumptionsaccording to professional judgment. Rather, it's the goal of the profes-sion to demonstrate to various publics that members of the actuarialprofession are accountable for the quality of their work, and that aframework exists to ensure that accountability, and, in addition, toprovide a safe harbor for actuaries who practice with due regard totheir eccountabilities.

That was the objective of the standards thrust back in the mid-1980s. I think we'vecome a long way and, in fact, are delivering on that objective now.

MR. CORBETT: Thank you very much, Walter. With Dave's and Waiter's examplesof critiques and suggestions, I think we should move to getting comments fromanybody in the audience who would like to speak about standards, about the ASB,and about the whole process.

MR. SHRIRAM MULGUND" I have two comments. The first one Mr. Levene has

already referred to. We as actuaries have spent most of our time on the liability sideof the balance sheet. We've got to spend more time on the asset side, and I thinkthe ASB should take a more active role in the valuation of assets, quantification of thedefault risk, and asset projections, With regard to cash-flow projections and cash-flow mismatch, I think actuaries have concentrated their attention on fixed interestassets, such as bonds and mortgages. But the moment you come to equities andreal estate, you have got to bring in some assumptions for the projections. Forexample, if there had been some guidelines in place for dealing with junk bonds, someof the fiascos that have occurred probably could have been avoided. The actuarieswould not have taken into account full credit for the high rates of interest which thejunk bonds were providing.

The second comment is that these 17 standards provide guidance to the actuary, butone enhancement that could be considered is providing some practical examples.They could call them guidance notes. Forexample, in Canada, the Canadian Instituteof Actuaries has published some valuation technique papers. They may not all havethe force of the recommendations, per se. But they do give some sort of direction orguidance to the actuaries as to how those particular standards could be applied.

Maybe the ASB could consider something like that. It could take some examples andphysically go through the process and explain how the particular standard could be

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applied. Of course, there is a danger that some of the actuaries could take that as asafe harbor, but it could be avoided by putting sufficient explanations up-front, andmaking sure that the actuaries don't use it for the wrong reasons.

MR. CORBE-[3": There are a lot of things that actuaries might want to be involvedwith, and if we are involved with them, there should be standards for them. How-ever, if there's no regulatory base for the actuary's involvement, there's no way ofassuring that the standards will be used, or that the actuary will even be involved.Assets are certainly not entirely in that situation; for example, one must take intoaccount the cash flow on the assets under New York Regulation 126. So, as Davidsaid, there's certainly a large camel's nose under the tent, but it's an area in which Ithink we want to move cautiously.

Second, on guidance notes, we've had some brief discussion of this. If I remembercorrectly, this came up at a meeting of the Life Operating Committee. We feel thereis a need for more education and illustration as to how to use standards. We're notsure that's something the ASB should be doing as opposed to, say, a practice councilin the American Academy or the Committee on Life Insurance Financial ReportingPrinciples. It seems to us that it's probably better done by them. All of thesestandards are now incorporated into the study notes. The Society makes a consciouseffort to move the standards into the appropriate part of the study notes, but beyondthat I think the amplification of the standards would be worthwhile. It's quasi-educational, quasi-standards amplification, that should be taken up by some form ofpractice council within the Academy rather than the ASB itself.

MR. W. JAMES MACGINNITIE: I chair a new committee of the American Academyon professional responsibility. The charge of this committee is to took at ways toenhance familiarity with the various standards - not only those promulgated by theASB but also those of conduct and qualification - and familiarity with the disciplineprocess; and also to look at ways to monitor the effectiveness of the various stan-dards. Several speakers have touched on various aspects of the work of thiscommit-tee. At this juncture, our job is primarily to map out the procedures that theprofession might follow, at least in the United States.

One way to show the size of the problem is to point out that the Fellowship Admis-sions Course, which is now required of all new Fellows of the Society of Actuaries,requires some study in ethics and the various standards that I've mentioned. But wehave roughly 10,000 members of the Academy in the United States who are notbeneficiaries of going through that Fellowship Admissions Course, and we have somenew members coming in every year who will never go through it, such as careerAssociates and Enrolled Actuaries. So, how do we reach those people? Even fornew Fellows, we're reaching them at a very early stage in their professional careers,and the need for continuing education and increased familiarity is also evident.

One of the things that the committee has heard time and again is the widespreadbelief that standards are for consultams; they don't apply to company people. Iat-tended the Open Forum of the Society of Actuaries for chief actuaries, and I wasvery pleased to see the great interest that they've exhibited, as was also true in theremarks here. One of the methods that was suggested there by one of the chiefactuaries was to, at the point of exposure, make sure that the people who are going

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to be affected become aware of the new standard and how it's going to impactthem, and then develop a response to the ASB, if it's an ASB kind of proposal, or tothe appropriate Academy committee, if it's that sort of committee. I think that canbe a very effective manner of increasing familiarity, and I hope to see its use spreadwidely.

Finally, I would observe that we're interested in a variety of potential compliancemechanisms, and we are looking with great interest at the Canadian experience withcompliance questionnaires for people who are subject to certain kinds of standards.But we are also interested in the sampling of various reports that are filed in thepublic, and other ways that we might get the policeman out of the station house,which is the description that I would offer of our current discipline process. Certainly,as members of society we don't think that we could maintain law and order if policeforces sat in the station house and waited for people to come knocking on the door,and perhaps we have to think about our own professional societies in the samemanner.

MR. ALAN W. FINKELSTEIN: I'd like to ask Paul Kolkman a question. In recentmonths I've seen a lot of group health insurance pricing work that was prepared bybrokers, consultants, and underwriting agencies. Products are being introduced soquickly to the marketplace that actuaries don't always have time to do the pricingwork themselves. If an actuary is preparing a rate memorandum in accordance withthe guidelines of Standard No. 8 and states that he relied on someone else to providethe work, and in fact, does not have access to all the information, what standardsexist for stating reliance on others?

MR. KOLKMAN: The reliance guidance is mainly in Opinion 3, and then that'sexpanded upon in each actuarial standard of practice that refers to it. I'd have to goback and read Standard No. 8 to see what it says about relying on others in asituation like that. I would think that as long as you disclose it, it would be okay, butI'd have to read No. 8.

MR. TURNQUIST: I might add there is one standard that has been approved forexposure which is on data quality, which addresses, among other things, the ability torely on data. We prohibit blind reliance, but I think this standard will address the issueand certainly affords the opportunity to expand upon it to address any concerns youhave.

MR. KOLKMAN" On that issue of getting the policeman out of the station house, I'vetalked to a couple of people from time to time that have claimed that the ASB seemsto be a little schizophrenic. On one side the ASB would like to take current practiceas it is today and codify it; but then there's another approach which is that we shouldset high standards for the profession, and get everybody to read the standards andthen live up to them. I think there's a tendency from time to time to bounce be-tween the two.

An interesting situation has come up recently with respect to the statutory reserveopinions filed at year-end 1990. If you read Standard No. 14, there's a very strongimplication that you need to disclose in your opinion whether or not you did cash-flowtesting, and why -- since, obviously, whether or not you do cash-flow testing on the

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statutory reserve opinion is an open issue, and people talk about it a lot. I know onesignificant state regulator has gone through the opinions it received in this year, andfound that over two-thirds of the opinions filed sort of ignored that. And so then itcomes down to, what do you do about standards that set a higher standard ofpractice but are widely ignored? Do you get into the situation of the old Recommen-dation 3, where there were one or two people in the country that observed it? Itraises a real issueabout standards.

MR. RUGLAND: I'd like to make a comment on that. At risk is the ability for us todecide what we do when we do an actuarial valuation. If we're not willing to set thestandards and live with them, the standards will be set, and actuaries will not berequired to follow them. So, that's what's at risk, and that's why it's so importantthat, when standards are written with respect to these actuarial functions, we takethem seriously, and we comply with them; because the preemption of the standardsprocess will result in regulatory cookbooks or regulatory requirements, which, by andlarge, do not require professionals after they're established.

MR. THOMAS P. EDWALDS: You had said that you weren't sure that equity was anactuarial concept. I believe it is, and I think the ASB should promulgate a definition ofit because I think that, when actuaries talk about equity, we have a meaning that weknow, but that people who don't have our background have something totallydifferent in mind if they hear the word equity. I think it would be good to have adefinition of the term for our own profession that says, "Here, this is what we meanwhen we say something is equitable."

MR. TURNQUIST: I think Paul's comment was that he didn't know if the Societyhad developed a principle on equity, and I think this is one I would like to seeaddressed by the Society of Actuaries or the Casualty Actuarial Society or in the basicfundamentals.

MR. WARREN R. LUCKNER: I should comment on that, because I am the liaison to

the SOA Committee on Actuarial Principles,and the Committee's FundamentalPrinciples Exposure Draft is being submitted to the Board for approval to distribute. Itis a revision of the discussion draft that was distributed about a year ago. The draftdoes not mention equity directly, but I think it is addressed under the concept ofhomogeneity of data, and there are some issues related to risk classification that arisein that context.

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